To support the expansion of exports in the shipbuilding industry, financial authorities and commercial banks are expanding advance payment refund guarantees.
The Financial Services Commission and the Ministry of Trade, Industry and Energy held a ‘K-Shipping Export Finance Support Agreement Ceremony’ today (17th) to discuss these details.
Recently, the domestic shipbuilding industry has shown a favorable trend as large companies have received massive orders for LNG carriers and other high-value vessels, securing work for more than four years.
Ship exports from January to May this year totaled $10.4 billion, marking a 57% increase from the previous year.
The Financial Services Commission and the Ministry of Trade, Industry and Energy explained that they held a meeting to discuss the need to expand the supply of Advance Payment Refund Guarantees (RG), which are essential for shipbuilding contracts due to the recent boom in shipbuilding orders.
Advance Payment Refund Guarantee is an agreement where a financial institution pledges to reimburse the advance payment (usually 40% of the shipbuilding contract amount) to the shipowner if the shipbuilding company fails to deliver the vessel on time.
During this meeting, five major commercial banks (KB Kookmin, Hana, Shinhan, Woori, Nonghyup), three regional banks (Kyungnam, Kwangju, Busan), and four policy financial institutions (Industrial Bank, Korea Development Bank, Korean Trade Insurance Corporation, Export-Import Bank) agreed to expand RG for medium and large shipbuilders.
Initially, the five major commercial banks, three regional banks, and Korea Development Bank agreed to support the issuance of RG for 9 vessels ordered by medium-sized shipbuilders within the RG issuance deadline.
The total RG amount is $30 million for each vessel and a total of $260 million, with participating banks expecting smooth progress in the construction of 9 vessels worth a total of $700 million (equivalent to 1 trillion Korean won).
Commercial banks issuing RG for medium-sized shipbuilders is happening for the first time in 11 years, with Shinhan Bank issuing the first RG to Daehan Shipbuilding.
The Korean Trade Insurance Corporation decided to increase the special guarantee ratio for RG for medium-sized shipbuilders from the existing 85% to 95% to reduce the guarantee burden on banks.
The Industrial Bank plans to issue its own RG amounting to $260 million for vessels already ordered by medium-sized shipbuilders.
For large shipbuilders, the five major commercial banks, Industrial Bank, Export-Import Bank, and Korea Development Bank agreed to provide a total of 14 trillion won in new RG limits.
As large shipbuilders have already expanded their workload for nearly four years and have almost exhausted their RG limits, eight banks granted new RG limits to Hyundai affiliates (HD Hyundai Heavy Industries, Hyundai Samho Heavy Industries, Hyundai Mipo Dockyard) and Samsung Heavy Industries.
[Photo source: Yonhap News / Provided by HD Hyundai Heavy Industries]
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